Protect Your Capital

I often say trading is a business.  With the trader as the CEO of the business, it’s our responsibility to make money.  As a result, it only natural that we want to trade every day.  It’s very easy forget that if we are to make money, then it must be the first order of business to protect your capital.  If your anything like me patience is a skill that I have to work on every day of my life.  The truth of the matter is that most of us have very little natural patience.

To combat our natural tendencies is why we as traders must have a well thought out trading plan and develop the discipline to follow the rules.  With volatility so high my edge is gone, and it’s my discipline to follow the rules of the plan that protects me, from me.  I have learned the hard way that if I break my rules, the consequence of that action is often a capital loss.  The choice is yours.  Will you exercise the discipline necessary to follow the rules that protect your capital or will you allow your impatient nature to rule?

On the Calendar

Another very light day on the Economic Calendar today with no market-moving reports.  There is a Fed Speaker at 8:00 AM Eastern which happens to be the biggest event listed today.

On the Earnings Calendar, we have about 150 companies reporting today.  Make sure your checking and have a plan for companies you hold or thinking of buying.

Action Plan

The big gap up yesterday seemed to run directly into a stone wall as there were no follow-through buyers.  The VIX pulled back ever so slightly but remained very high by the end of the trading.  The decision to stand aside is a difficult one for most traders, but it seems to have been a good call considering the morning futures.  As I write this, the Dow Futures are pointing to gap down in the Dow of more than 150 points.  That could potentially create a failure pattern on the index ETFs.

Now the question is can the market hold creating a higher low we can work with, fall to lows to find support or will it drop right on through creating a new low.  Continue to expect very past price action with the VIX likely rising at the open today.  Remember that sitting in cash is a position and one that protects your capital in times of such volatility.  Try to be patient; good things come to those who wait.

Trade Wisely,

Doug